Pricing commercial air travel

June 28, 2005

Endeavoring to fill their flights, airlines offer a variety of discount fares. The official Consumer Price Index (CPI) for commercial air travel, however, is based on prices listed by the airlines in SABRE, a widely-used reservation system.

The Bureau of Transportation Statistics will soon be publishing a new quarterly experimental Air Travel Price Index (ATPI), which is computed using a dataset that is itinerary based; each observation consists of an actual fare paid (including tax), a sequence of airports and carriers, and other details of a trip by a passenger or a group of passengers.

For the period from the fourth quarter of 1998 to the second quarter of 2003, the CPI for airline fares increased 15.4 percent, while the U.S.-origin ATPI increased 6.8 percent and the full-scope ATPI increased 6.6 percent.

This difference between the airline fare CPI and the ATPI series is probably due mainly to (1) the different formulas used and (2) the ATPI’s inclusion of special discount fares that involve differential pricing (for example, frequent-flier awards and Internet specials), combined with consumers’ increasing use of special discount tickets during the period.

The CPI data are from the BLS Consumer Price Index program and the Air Travel Price Index data are from the Bureau of Transportation Statistics. Currently, the data used in the ATPI become available with a lag of 3 to 6 months. To learn more, see "A transaction price index for air travel" by Janice Lent and Alan H. Dorfman, Monthly Labor Review, June 2005.

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